President Khama blames reduction on over dependence on diamonds

PRESIDENT Seretse Khama Ian Khama has attributed the recent drop in Botswana’s foreign reserves to the country’s over dependence on raw diamonds.

The country’s foreign reserves are reported to have declined from P60.3 billion at the end of December last year to P59.8 billion at the end of June 2012.

A portion of the reserves will be drawn upon to repay the foreign debt incurred to fi nance major projects during the recession, President Khama revealed during thestate of the nation address on Monday.

Although he did not mention the exact amount that will be drawn from the reserves, Khama said he hoped to have reduced the country’s debt by the end of the current financial year, which ends next year April.

“Our total debt ratio as a percentage of GDP stood at 25.4 percent last April and is forecast to decline slightly by the end of the current fi nancial year,” Khama said. He further faulted the country over dependence on diamonds revenues which he said makes the country economy vulnerable to market instabilities as most of its income was generated through mining.

“Our slower growth is primarily due to a decline in mining sector output.

During the fi rst quarter of 2012 mining output in real terms was 9.5 percent less than in the fi rst quarter of 2011 and in the second quarter it was 7.6 percent less than in the same period a year earlier.

Prospects for the remainder of the year are also not encouraging,” Khama stated.

The president added that the global diamond market experienced negative performance during the first half of 2012, with reduced sales volumes and a softening in prices.

This, he said reflected constrained global demand, exacerbated by slow growth and uncertainty in the Euro Zone, China, India and the USA.

What worried the President ven more was that the recent International Monetary Fund (IMF) World Economic Outlook has issued a warning of continued weakness in the performance of both advanced and key emerging market economies.

However Khama noted that there was hope on non-mining sectors of the economy which have been registering steady growth for the same period although Agriculture experienced setbacks.

“Most nonmining sectors have however recorded positive real growth rates for the same period with construction growing by 19.7 percent, utilities by 11.2 percent, social and personal services by 10 percent.

These numbers are indicative of modest progress towards economic diversification,” Khama further stated that even in the absence of the global economic downturn, Botswana would be living through challenging times as it weans itself from over dependence on raw diamonds revenues.

He said besides being vulnerable to market instability, the whole scenario means that most of the country’s two million population have been living off the wealth generated by the labour of very few people and it has contributed to the country’s low productivity